Everything Is Rigged: The Biggest Price-Fixing Scandal Ever
The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix

By Matt Taibbi
April 25, 2013

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three  and perhaps as many as 16  of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history  MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks  including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland  that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

The Scam Wall Street Learned From the Mafia

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

"It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality."

The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators  the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions  were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks  many other benchmarks  are legit areas of inquiry," CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March  though if you follow these matters closely, it may not have been so shocking at all  when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

"A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal.

"Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.

All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings  in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP  are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati  this is the real thing, and it's no secret. You can stare right at it, anytime you want.

So is this why all those big bankers committed suicide / were rubbed out?

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Originally Posted by Chris616

High Tech is Sorcery and the people who are really powerful are literally telling people to commit crimes using the psychic interspace created by the WWW and Wireless. They are controlling peoples actions like drones . The two things are deeply intertwined. The more man's brain interfaces with machines the creepier it gets. They use brains separate from a human body in a supercomputer and you have The Image of the Beast. The military has been doing this since the 50s

This is why we're all ****ed. Special-interests from both sides of the aisle, aided by a sensationalistic news media that has no interest in real stories, keep us distracted and at loggerheads with each other over bullshit, while they rob us blind.

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"Most of us can, as we choose, make of this world either a palace or a prison."
John Lubbock

I don't disagree with that picture at all... but if you think the other side of the isle is the savior you need your head examined. Folks with lots of education (and thus enormous debt usually) but limited real world experience are to them what the uneducated redneck is the the GOP.

The technological arms race among professional equity traders threatens to destabilize U.S. markets and more should be done to limit their speed, according to New York Attorney General Eric Schneiderman. Schneiderman’s inquiry threatens to disrupt a model that market regulators have permitted for years as high-speed trading and concerns about its influence have grown. Trading firms pay to place their systems in the same data centers as the exchanges, a practice known as co-location that lets them shave millionths of a second off transactions.

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Originally Posted by article

“The United States stock market, the most iconic market in global capitalism, is rigged,” Lewis, whose books “Liar’s Poker” and “The Big Short” highlighted Wall Street excesses, said during an interview on “60 Minutes” yesterday. “It’s crazy that it’s legal for some people to get advance news on prices and what investors are doing,” he said.

Everyone who owns equities is victimized by the practices, in which the fastest traders figure out which stocks investors plan to buy, purchase them first and then sell them back at a higher price, said Lewis. Firms using the tactics account for about half of share volume in the U.S., a statistic that shows their pervasiveness and hints at the obstacles faced by proposals to rein them in. Exchanges rely on HFTs for profits as well as liquidity.

a simple solution would be to increase the fee per transaction. High frequency trades would become cost-prohibitive.

Several financial outfits have been all over HFT for awhile. The opinions about it are mixed (really depends on the author).

HFT is garbage. Their liquidity is temporary at best (if things go south, they disappear). It is a pure skimming operation. Their success rates are impossible for legitimate market participants to achieve (one firm hasn't had a losing day in 4 years, the best traders in the world have about a 60-70% success rate).

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The diameter of your knowledge is the circumference of your actions. Ras Kass

Several financial outfits have been all over HFT for awhile. The opinions about it are mixed (really depends on the author).

HFT is garbage. Their liquidity is temporary at best (if things go south, they disappear). It is a pure skimming operation. Their success rates are impossible for legitimate market participants to achieve (one firm hasn't had a losing day in 4 years, the best traders in the world have about a 60-70% success rate).

Break it down for a layperson. Does it make it OK what they are doing, even if it is temporary? I would think not, but this is not my bag, so???

Here is a good response from Felix Salmon on Lewis's version of HFT. I agree with him that HFT is probably doing more harm than good, but Lewis's sensationalist account is missing the mark in a number of ways.

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Michael Lewis’s flawed new book
By Felix Salmon MARCH 31, 2014

I’m halfway through the new Michael Lewis book – the one that has been turned into not only a breathless 60 Minutes segment but also a long excerpt in the New York Times Magazine. Like all Michael Lewis books, it’s written with great clarity and fluency: you’re not going to have any trouble turning the pages. And, like all Michael Lewis books, it’s at heart a narrative about a person — in this case, Brad Katsuyama, the founder of a small new stock exchange called IEX.

The narrative is interesting enough — but so far I haven’t seen anything that would qualify as the “lighting in a bottle” he promised Boris Kachka. We were promised scoops, but so far it’s hard to see what the scoops are supposed to be. The most interesting thing I’ve discovered so far is the existence of something called “latency tables” — a way for HFT shops to work out exactly which brokers were responsible for which orders. The trick is to realize that because every brokerage is in a slightly different physical location, each house’s trades will hit the various different stock exchanges in a slightly different order. And so by looking at the time difference between a given trade showing up on different exchanges, you can (or could, at one point) in theory identify the bank behind it.

This vagueness about time is one of the weaknesses of the book: it’s hard to keep track of time, and a lot of it seems to be an exposé not of high-frequency trading as it exists today, but rather of high-frequency trading as it existed during its brief heyday circa 2008. Lewis takes pains to tell us what happened to the number of trades per day between 2006 and 2009, for instance, but doesn’t feel the need to mention what has happened since then. (It is falling, quite dramatically.) The scale of the HFT problem — and the amount of money being made by the HFT industry — is in sharp decline: there was big money to be made once upon a time, but nowadays it’s not really there anymore. Because that fact doesn’t fit Lewis’s narrative, however, I doubt I’m going to find it anywhere in his book.

Similarly, Lewis goes to great lengths to elide the distinction between small investors and big investors. As a rule, small investors are helped by HFT: they get filled immediately, at NBBO. (NBBO is National Best Bid/Offer: basically, the very best price in the market.) It’s big investors who get hurt by HFT: because they need more stock than is immediately available, the algobots can try to front-run their trades. But Lewis plays the “all investors are small investors” card: if a hedge fund is running money on behalf of a pension fund, and the pension fund is looking after the money of middle-class individuals, then, mutatis mutandis, the hedge fund is basically just the little guy. Which is how David Einhorn ended up appearing on 60 Minutes playing the part of the put-upon small investor. Ha!

Lewis is also cavalier in his declaration that intermediation has never been as profitable as it is today, in the hands of HFT shops. He does say that the entire history of Wall Street is one of scandals, “linked together trunk to tail like circus elephants”, and nearly always involving front-running of some description. And he also mentions that while you used to be able to drive a truck through the bid-offer prices on stocks, pre-decimalization, nowadays prices are much, much tighter — with the result that trading is much, much less expensive than it used to be. Given all that, it stands to reason that even if the HFT shops are making good money, they’re still making less than the big broker-dealers used to make back in the day. But that’s not a calculation Lewis seems to have any interest in.

In his introduction to the book, Lewis writes this:

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The average investor has no hope of knowing, of course, even the little he needs to know. He logs onto his TD Ameritrade or E*Trade or Schwab account, enters a ticker symbol of some stock, and clicks an icon that says “Buy”: Then what? He may think he knows what happens after he presses the key on his computer keyboard, but, trust me, he does not. If he did, he’d think twice before he pressed it.

This is silly. I’ll tell you what happens when the little guy presses that key: his order doesn’t go anywhere near any stock exchange, and no HFT shop is going to front-run it. Instead, he will receive exactly the number of shares he ordered, at exactly the best price in the market at the second he pressed the button, and he will do so in less time than it takes his web browser to refresh. Buying a small number of shares through an online brokerage account is the best guarantee of not getting front-run by HFT types. And there’s no reason whatsoever for the little guy to think twice before pressing the button.

HFT is dangerous, I’d like to see less of it, and I hope that Michael Lewis will help to bring it to wider attention. But my tentative verdict on Flash Boys (I’ll write something longer once I’ve finished the book) is that it actually misses the big problem with HFT, in the service of pushing a false narrative that it’s bad for the little guy.

Break it down for a layperson. Does it make it OK what they are doing, even if it is temporary? I would think not, but this is not my bag, so???

I missed this the other day.

HFT is basically picking up pennies by blasting fake quotes and inserting trades to push up execution prices. It works because these firms have paid money to the exchanges to co-locate their servers. They are working on a millisecond basis.

When I said they are temporary liquidity, I was referring to one plank of HFT defenders' argument. A lot of HFT apologists say that these firms provide liquidity which would make it more tolerable if true. The reality is that when the market has a sharp drop off these HFT trades disappear and are no longer providing liquidity.

Here is a good response from Felix Salmon on Lewis's version of HFT. I agree with him that HFT is probably doing more harm than good, but Lewis's sensationalist account is missing the mark in a number of ways.

U.S. Securities and Exchange Commission Chair Mary Jo White flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices.

White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book "Flash Boys: A Wall Street Revolt" since its publication about a month ago.

In the book, Lewis claims that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price.

The book has since prompted the FBI, the SEC, the U.S. attorney general and the New York state attorney general to disclose they are investigating potential abuses by high-speed traders.

White reiterated on Tuesday that her agency's investigators are actively pursuing probes into high-speed traders and dark pools, or anonymous trading venues.

But she also sought to dispel the notion that using high-speed technologies to trade ahead of others using stock quotes disseminated on public data feeds could meet the legal definition of "unlawful insider trading."

in recent weeks, Michael Lewis' book has re-ignited a long-standing debate over the role of high-speed traders, and whether they may be getting an unfair advantage over ordinary investors.

Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets.